Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 28th January 2020 *
If you are a homeowner aged 55 or over and are wondering if you should release some equity from your property, then you’ve come to the right place. We get lots of enquiries from people who want to know whether a lifetime mortgage is a good idea and what the alternatives might be.
In this guide, we have gathered all the key information you need to know about lifetime mortgages, their advantages and the possible pitfalls, including:
Is a lifetime mortgage a good idea? As is the case with any mortgage product, taking one out is a huge financial decision - so to help you decide whether this is the right option for you, we’ve listed the advantages and potential drawbacks of lifetime mortgages in the table below...
Advantages of a lifetime mortgage
Disadvantages of a lifetime mortgage
Usually you don’t have to make any repayments while you’re alive
If you're not making any repayments, your mortgage debt can increase quickly over time
You have the right to remain in your property until you need to move into long-term care, as long as the property remains your main residence
A lifetime mortgage can be more expensive in comparison to an ordinary mortgage
Most lifetime mortgages have a “no negative equity guarantee” so if your property is sold and the amount left isn’t enough to repay the outstanding loan, neither you or your estate will be liable to pay
If you release equity from your home, you might not be able to rely on your property for money you need later in your retirement such as long term care
Most providers let you take out smaller loans as and when you need to, rather than one big lump sum which could mean you pay less interest
If you want to downsize later on you might not have enough equity in your home so you might need to repay some of your mortgage
The borrower stands to benefit from any future increases in their property’s value
The amount of money you receive from a lifetime mortgage might affect your entitlement to state benefits
Age restrictions can be less stringent. It may be possible to take out a lifetime mortgage up to the age of 95
There may be less for you to pass onto your family as an inheritance
If you’re concerned that any of the drawbacks above might apply to you, get in touch and the expert brokers we work with will carry out a full risk assessment and suggest ways that you can safeguard yourself.
There’s always the chance that none of these potential pitfalls apply to you, and even if they do, there could be other alternatives to consider.
Lifetime mortgage alternatives
Lifetime mortgages won’t be a viable option for everyone, but the good news is that there may be other alternatives to consider, such as home reversion plans.
Home reversion plan vs lifetime mortgage
A home reversion plan is an alternative product some homeowners choose to apply for rather than a lifetime mortgage. But what are the differences between the two?
The table below highlights what sets these two product types apart...
Home Reversion Plan
You sell part or all of your home to a home reversion provider in return for a lump sum or regular payments
A lifetime mortgage is secured against your property and you pay this back from the sale of your property if you go into care or pass away
You can ring-fence a percentage of your property for later use, possibly for inheritance
You can ring-fence a percentage of your property for later use, possibly for inheritance
The percentage of the property you own will always remain the same regardless of any change in the property value
You can choose to pay back your loan in installments to reduce the interest you pay. Any remaining balance of the loan will be paid for from the sale of your property
Which should I choose?
Home reversion plans are less popular than lifetime mortgages and many brokers may recommend a lifetime product as the way to go, but if you’d like to know more on home reversion, the advisors we work with can give you further information and outline the benefits of taking a lifetime mortgage over one of these deals.
If you have any questions about lifetime mortgages vs home reversion plans, get in touch to speak with a whole-of-market broker over the phone.
Other alternatives to lifetime mortgages
If your goal is to raise extra capital in your retirement, lifetime mortgages and home reversion plans might not be the only courses of action. Alternatives include:
Downsizing (moving to a smaller property)
Claiming benefits (E.g. local authority home improvement grants)
Taking in a lodger (always seek consent from your lender)
For more information about any of the above and to find out what other options might be available, make an enquiry for a free, no obligation chat and we’ll connect you with one of the whole-of-market experts we work with.
Eligibility for lifetime mortgages
In order to determine whether a lifetime mortgage is the best option for you, it’s worth considering whether you would meet the eligibility requirements for one. The closer you meet a mortgage provider’s lending criteria, the more likely they are to offer you their most favourable rates.
Many lifetime mortgage lenders use stringent eligibility checks which could include questions about...
What you need the money for: usually lenders provide a lower loan value (LTV) ratios for applicants who want to use the loan for investments although there are specialist lenders who will consider this
How much equity you have: Usually the more the better
Your affordability: The lender must ensure that your loan is affordable for you. They may look at your income which could come from pensions, savings or a job
Any credit issue you may have: A good credit history always helps but with each lender what is perceived as “good credit” can vary depending on the date and severity of any credit issues you may have
Your age - Some lenders are unwilling to lend to applicants over 75, but others will stretch to 85, and a small number have no age limits at all
For more information on how each of these factors can affect your lifetime mortgage application, it’s best to talk to an advisor. Contact us for a free, no obligation chat and we’ll put you in touch with an expert who can talk you through the eligibility checks you may face when applying for a lifetime mortgage.
How much could you borrow with a lifetime mortgage?
A lifetime mortgage lender will want to know how much equity you own of your property and they’ll calculate this by subtracting any outstanding loan balances from the property’s current market value.
Based on this, most lenders will consider releasing up to 75-85% of the property value, with some willing to lend up to 90%. Some lenders can restrict how much they are willing to loan in certain circumstances such as the purpose for the money, so speak to an expert before making an application.
Why you should speak to an expert lifetime mortgage broker
The advisors we work with are OMA Accredited and have also undergone a London Institute of Banking & Finance (LIBF) training course which allows them to offer a 5-star service with access to whole of market mortgage brokers.
As well as this, the experts we work with will carefully review all of the available options concerning lenders and products and can assess which one is better value and more suitable for you.
Speak to an expert about lifetime mortgages
If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry for a free, no-obligation chat.
We’ll match you with one of the brokers we work with, ensuring that they have experience of helping customers with similar circumstances.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...
Find out more about how we help people with lifetime mortgages